Date: Thursday, June 28, 2018
MIFID II raised the profile of natural user netting in Europe by decreeing that every exchange must now offer some form of natural user netting programme, where reasonably possible. When talking to our customers about our products and services, a recurring topic is Natural User Netting. Whether it is through a rebate scheme such as the NYSE and NASDAQ, MISU programmes, alternative single user fees such as the Deutsche Bourse and Euronext or setting up a direct billing relationship with the exchanges like the LSE and the CME, the rules around these netting schemes can be complex. It is therefore important to analyse the different rules and pricing before enrolling in a netting programme to ascertain whether you will actually save any money or whether your workload will increase for no discernible benefit. What is Natural User Netting and can it save me money? Natural User netting is where an individual employed by a subscribing firm is given access to the same data via multiple sources and only counted once for reporting and billing purposes. For instance, where there is more than one platform for delivering data to a single user, such as a Bloomberg Terminal and the Thomson Reuters Enterprise Platform (TREP). Great, where do I sign up? Unfortunately, it is a little more complicated than that. Firstly, there are usually qualifying criteria containing some type of validation of the counting process within your organisation (or whisper it, an audit). Once they are happy that you can track and count the users, you need to ensure it continues, with an annual check-up, which is mandatory for some exchanges. Where do you start and what should be considered as part of your analysis? 1) How many sources do you have containing the same data? A typical scenario: Desk traders are using direct feeds for trading, they are accessing a Thomson Reuters feed via their desktop alongside a Bloomberg Terminal. They are also viewing the same data via their risk management systems. In addition, there is a Bloomberg B Pipe feed for the Debt side of the business and an End of Day feed from SIX. All these use cases could attract separate fees for the same data when there is no need. In addition, where a firm has multiple feeds but only permissions users who really need the data, the marginal cost of enabling the same data on another feed suddenly drops to nothing if you have Natural User Netting in place. 2) Do you have a lot of users accessing multiple vendor feeds? In order to move to a netting programme a direct agreement needs setting up with the exchange and a side effect of this is that you will automatically save the 5-7% mark-up on vendor fees in addition to the savings made by netting. In some of our customer’s cases they save more money on the vendor mark-up than they do from netting out multiple accesses. Not everyone considers this type of saving. Generally, it is assumed that this applies only to those firms where there is substantial data usage, and you may think that it wouldn’t apply to your firm because your usage is low. It is always worth doing the calculation before you write off the idea completely. Alternatively, you could use Axon’s Compliance Review service (ACR) to evaluate the potential cost savings from entering into a direct reporting arrangement or netting program. Contact firstname.lastname@example.org for more details.